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Annual inflation in Croatia dropped sharply from March to April 2013.

As expected, annual consumer price inflation in Croatia dropped sharply from March to April 2013, falling to 3.3% according to the latest data from the Bureau of Statistics. In MarchMay 2012, consumer prices shot up a total of 4.0% due in large part to the introduction of higher value-added tax rates that drove up prices. In the corresponding period of 2013, these base effects will fall out of annual inflation calculations, resulting in a sharp slowdown of the annual inflation rate. As of February 2013, annual inflation was 4.9%. When the May data is released, we expect annual inflation to be down to 1.9%. Annual inflation is falling sharply even though month-on-month (m/m) growth rates are not particularly low right now. In April, for instance, consumer prices still grew by 0.4% m/m, boosted by the introduction of new clothing lines that sent prices there sharply upward and a 1.1% m/m increase in the price of tobacco.After a further deceleration in May, Croatia's inflation rate will likely push higher during the second half of the year. However, any acceleration will be relatively muted, kept from rising too far by depressed international commodity prices and weak domestic demand. Additionally, the process of aligning final value-added tax rates with the EU upon Croatia's accession mid-year will result in reductions in prices in some areas. Finally, we expect the Croatian kuna to be relatively strong and stable against the euro in the foreseeable future, further keeping a lid on inflationary pressures. Historically, inflation has not been a problem for Croatia. In spite of its somewhat elevated levels as of late, we do not believe it will be a problem going forward, either.bne/IHS Global Insight
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Publication:Balkan Business News
Geographic Code:4EXCR
Date:May 17, 2013
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